Basics of the W-9 Form

Founded in 1981 and expanded in 2016, Doonan Tax Services offers advice and return preparation for taxpayers in New York City and beyond. Doonan Tax Services is able to explain any forms involved in tax calculation and preparation, the W-9 being only one example.

The W-9 form is a part of the financial life of most independent contractors, self-employed professionals, and consultants. It allows a person or organization to provide contracted services to a business, which uses the information provided to report related payments to the Internal Revenue Service. Even those who are employees of a company may see a W-9 if they receive interest or dividends from a bank.

The W-9 requires only basic information from the entity completing it. Individuals must provide a name and social security number, while businesses replace the social security number with an employer identification number (EIN). Because this is identifiable and vulnerable information, the person filling out the form should ensure its secure transmission.

The person filling out the W-9 must also indicate whether he or she, or the relevant organization, is subject to backup withholding. This is a flat withholding rate that applies to persons or organizations whose name and tax identification numbers do not match IRS records, or who have outstanding tax debts. 

These circumstances do not apply to most people filling out a W-9. Individuals not subject to backup withholding simply indicate such on a specified certification area of the form. If the person in question is subject to backup withholding, however, he or she will need to strike out the wording that would certify to the contrary.

Factors That Increase Risk of Tax Audit

Although the number of taxpayer audits by the Internal Revenue Service (IRS) has been in decline, having decreased nearly 16 percent from 2015 to 2016 alone, certain characteristics of a tax return still increase a person's risk. Any taxpayer whose income is above $200,000, for example, has an audit risk of around 2 percent, while an individual with an adjusted gross income (AGI) of $50,000 to $75,000 has a risk of only 0.47 percent. A taxpayer whose AGI is between $1 million and $5 million, meanwhile, has a more than 8 percent chance of audit.

The IRS is also more likely to audit taxpayers who are self-employed, as these individuals tend to take more deductions for expenses. Those who claim home office deductions may be particularly susceptible to audit, as there is a high rate of abuse for this type of allowance. Relatedly, if a taxpayer's deductions are significantly higher than expected, that individual may receive an audit.

All taxpayers, regardless of situation, must ensure that all income and expenses are reported correctly. Taxpayers should be particularly precise regarding information reported on 1099s, W-2s, and similar forms, as the IRS can cross-check these and audit any return on which the numbers fail to match.